Andy Friedman, political consultant with the Washington Update, says in his commentary released Thursday that the country is split almost equally among Republican, Democratic and independent voters according to the Rasmussen Report, noting that “it is not difficult to predict how the bulk of the first two categories will vote.”
The election, Friedman says, is likely to turn on the independent vote, with his “longstanding analysis” being that President Barack Obama “has the better chance of capturing the majority of the Independent vote” for at least three reasons:
- “Independents are more concerned with economic than social issues. The Republicans have shown a greater tendency to get bogged down in debates over social issues, a discussion that is unlikely to resonate with independents.”
- “The conventional wisdom is that President Obama cannot win re-election with an unemployment rate over 8%. But Obama is deflecting that blame to Congress by noting that the economy took a U-turn only in 2011, when the Republicans gained control of the House and blocked his programs. Although Republicans will find this assertion unpersuasive, it can resonate with independents, who give Congress exceedingly low approval ratings.”
- “Independents generally do not object to higher taxes on wealthy Americans. The Republicans’ insistence on maintaining the current tax system for all Americans—no matter how much money they make—might strike independents as unduly intransigent, particularly in light of the large federal deficit.”
Friedman also cites a USA Today poll conducted last week, which found that 3 in 10 independents said they were now less likely to vote for Romney in the wake of his comment that “there are 47% of Americans [who don’t pay income tax,] who are with Obama, who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them.”
The poll, Friedman says, “illustrates the uphill struggle Romney faces with independents.” The Washington-based political analyst also updated past analysis of the impact government policy will have on the economy. Friedman warned that the high level of uncertainty on major tax questions expected to be handled or further deferred by a lame-duck Congress will likely increase market volatility rather than decrease it, as elections normally do.
The continuing uncertainty stems from Congress having adjourned last week without addressing the “fiscal cliff”—the looming expiration of Bush-era tax cuts and simultaneous inception of “sequestration” cuts in the new year. The Congressional Budget Office predicts that the combination of ensuing tax hikes and spending cuts will send the economy into recession for at least the first half of 2013.
Because the next session of Congress will be the current Congress, despite the outcome of November elections, it is highly uncertain what will or even can be done about the large dose of austerity currently set to automatically take effect.
Friedman says that if lawmakers act to shield the economy from the effects of $2.1 trillion in spending cuts, credit rating agencies Standard & Poor’s and Moody’s have already warned they would downgrade U.S. debt. Yet the fact that half of the planned spending cuts are politically sensitive reductions in defense expenditures make it highly uncertain Congress will go through with the plan.
The fate of the Bush tax cuts is equally uncertain. If they are extended in their current form, Friedman cites Obama’s advisors signaling a veto is likely. But if Republicans craft a compromise bill that restores lower tax rates for the middle class but allows current lower rates for wealthy Americans to expire, they will run afoul of “Norquist” pledge to not raise taxes.
Thus, the matter may be deferred until the new Congress convenes in January—after the Bush-era law expires. That way, there would be no technical violation of the Norquist pledge if Republican lawmakers must compromise with a re-elected Obama.
“Such shenanigans would be unfortunate, as it would perpetuate the uncertainty over taxes beyond year-end,” Friedman writes.
Since elections usually resolve political uncertainties, but the current environment seems to suggest uncertainty will prevail after the elections, Friedman sees grounds for market volatility to persist. But he points out that, regardless of what happens with the Bush tax cuts, there is certainty that taxes on the wealthy are going to rise in the new year in other areas. The Supreme Court’s upholding of Obamacare means the wealthy will see an additional tax of 0.9% on compensation income and a 3.8% additional tax on interest, dividends, capital gains, rents and royalties. The increased taxes on investment income could drive investors to lock in gains by selling assets before the new year, Friedman says.
The analyst says unexpected events—such as a Mideast war—could change the election dynamics currently favoring the president’s re-election. “Those handicapping the election in the weeks ahead are best advised to follow polls solely of independent voters,” he says.